The following is an excerpt from The Shopify Merchant’s Guide to Holiday Engagement, a free eBook featuring 10 incredible Shopify experts. In this post, Steve Deckert, Co-Founder of Sweet Tooth, shares some common misconceptions and best practices for running loyalty programs, plus his actionable tips to help you boost your sales this holiday season.

Why It Matters

The main purpose of loyalty and referral programs is to keep your customers coming back. You want them to keep spending with you instead of your competitors, and to become brand advocates who get you new visitors by referring their friends and sharing on social media.

The reason loyalty programs are so important is because the cost to acquire a customer is getting higher and higher. There’s so much competition out there. If you do get a customer, you need to make sure you have a program in place to keep them coming back. If you’re spending money on something like Google Adwords, you’re often looking for an ROI based on the customer’s lifetime value (CLV). One purchase may not result in a positive ROI, but if they come back and shop several times, you can justify the cost of acquiring that customer.

Loyalty programs are effective because they make customers less likely to switch to a competitor. Sweet Tooth does this by awarding loyalty points that can only be redeemed at your store. This incentivizes the customer to keep spending with you. The great thing about loyalty points is that they’re a single incentive that you can attach to all of the marketing and promotions you run.

You can use loyalty points to reward customers for sharing on social platforms, subscribing to your newsletter, reviewing a product, making another purchase, or spending a certain amount. They can then choose to spend your reward currency however they want. Usually it’s to get a discount, but it can also be for free products, exclusive products that can only be bought with loyalty points, early access to sales, or an extended return policy. You can even invite customers with enough points to special VIP events!

Common Misconceptions

“Loyalty programs are outdated and ineffective.”

There’s evidence that shows that people are participating in more loyalty programs than ever before. The problem with many of these programs is that merchants don’t understand their customers, which means they’re not setting up their loyalty programs correctly.

“Loyalty programs are an automatic, set-it-and-forget-it strategy.”

One of the most important things merchants need to understand is that a loyalty program does not equal customer loyalty. Customer loyalty is an emotion. A loyalty program is a tool that helps you develop that emotion in your customers. Therefore, simply setting it up isn’t going to get you a bunch of loyal customers. You need to make sure you set it up correctly and that you’re offering the right incentives and rewards. A loyalty program isn’t simply “buy nine, get one free.” There’s a lot more that goes into it than that.

Best Practices

Understand your customers and give them what they want.

When it comes to connecting with your customers, purchases and discounts are just the transactional side of the relationship. If you’re only facilitating the transactional side, that’s the only kind of relationship the customer will ever have with you. As I’ve said, customer loyalty is an emotion. If you want to connect with your customers on a deeper level, you need to really understand them.

Knowing what kinds of rewards they would like is key to developing this connection, and exclusivity can be a big part of a loyalty program’s success. Some examples of exclusive rewards could include offering early access to a new product, offering products that can only be purchased with loyalty points, or introducing some sort of tiered status where customers are elevated based on loyalty. People connect with these kinds of rewards on an emotional level because it’s not just about discounts.

Work your way backwards to the actions you want to incentivize.

Once you figure out what kinds of incentives work best for your customers, then you can start thinking about what you want them to do. It’s important to work backwards and not start with the action. If you’ve done a good job of establishing points as a motivator, your customers will be much more likely to do what you want, whether that’s sharing your page, giving you their email address, purchasing a product, or something else entirely.

Action Items

Get your loyalty program set up now.

The holidays are a very busy time for most merchants. You’re going to see a lot of customers come to your store, many of which are first-time customers. You want to make sure your loyalty program is set up and those customers are earning loyalty points right out of the gate, so that you can set yourself up for a successful 2017. If you don’t have any sort of retention program in place for these customers, there’s no reason for them to come back.

Make sure your customers know about it.

In terms of marketing these programs, the best practices are really no different from any other marketing campaign. You’re going to want to have emails set up to announce and explain the program to customers. You’re going to want a dedicated rewards page on your site that tells customers how and why they should participate. With the holidays coming, you might even want a banner or popup that engages the influx of new customers and links to the rewards page.

Educate your staff.

This is one that often gets missed. Make sure your marketing staff knows how to consistently promote your loyalty program while also ensuring your customer service reps know how to identify and engage customers who are part of the program. It might be something as simple as thanking them for their loyalty, or they might ask if they want to spend their loyalty points or earn some extra points for upgrading their order. Again, treat it like any other marketing promotion.

Make It Happen

One of the surest ways to increase the lifetime value of your customers is to introduce a loyalty program. Sweet Tooth is the solution of choice for more than 10,000 merchants who understand the value of rewarding customers. The app’s generous free plan lets you reward customers for purchases, referrals, social shares and follows, and more. Try it out in your store and be sure to think about what kinds of rewards will influence your customers the most.

Read more in our free eBook!

The Shopify Merchant's Guide to Holiday Engagement

For more lessons on how to engage holiday shoppers and boost traffic and sales, be sure to check out The Shopify Merchant’s Guide to Holiday Engagement. It’s free to download—no email address required. Consider it our gift to you this holiday season!

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